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Social Security Do-Over at Risk

A little-known strategy that allows Social Security recipients to boost their income may soon disappear. Now, if you repay benefits you received in earlier years, you're eligible for a do-over -- and can claim a bigger monthly check based on your older age. If you or someone you know might benefit from the payback strategy, now's the time to consider it -- before the government eliminates the opportunity.

Retirees may collect Social Security benefits as early as age 62, but their monthly payments are reduced by 25% compared with what they would have received at the normal retirement age, which is 66 for those who claim benefits this year. If you're willing to wait past age 66, you can boost your benefits by 8% for every year you delay up to age 70, increasing annual benefits to 132% of their base amount.

Say you decided to collect early, but now you wish you were getting bigger monthly checks. First you must file Form 521, "Request for Withdrawal of Application," at your local Social Security office. Your retirement benefits will stop immediately, and if your spouse receives benefits based on your work record, his or her benefits will stop, too. Then the Social Security Administration will send you a letter telling you how much you need to repay (including any spousal benefits). That process may take several weeks or even months. Once you repay the benefits -- which could top $100,000 -- you may reapply for a higher payment based on your current age, locking in a larger base amount for future cost-of-living adjustments and maximizing lifetime benefits for a surviving spouse.

Second thoughts. The strategy has gained popularity as retirees realize that it is cheaper to repay Uncle Sam interest- and penalty-free and lock in inflation-adjusted payments for life than it is to buy a similar amount of guaranteed income with an annuity. But SSA officials could close this unintended loophole as early as next year.

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Under a proposed rule, retirees would be allowed to withdraw an application for Social Security benefits only once during their lifetime and only within 12 months of when benefits began. If you changed your mind within the first year, you could stop your benefits, pay back what you'd already received and restart your benefits later at a higher level. But once the 12-month deadline passed, you would no longer be able to repay benefits to "buy" a higher benefit later.